SAC Capital's Insider Trading Woes Cost Them over $600 Million


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SAC Capital Advisors LP, the hedge fund run by Guru Steven Cohen , will pay a record-breaking $616 million in order to correct U.S. regulatory claims stating that two of its portfolio managers were involved in illegal insider trading. The $616 million is set to be paid, but that doesn't prohibit or necessarily mean that the Securities and Exchange Commission (SEC) won't pursue Cohen, himself, in the future. Cohen claims that he's done nothing wrong, but he will be the one paying back the bulk of this fee.

Steven Cohen was connected to the alleged illegal trades done by SAC Capital's subsidiary company, CR Intrinsic Investors LLC, and its former manager, Mathew Martoma, in November 2012. U.S. prosecutors have described this as the "most-lucrative insider-trading scheme" they've ever seen. The estimated profits and averted losses of this case add up to $276 million.

What this means is that CR Intrinsic Investors, essentially made $276 million on this insider trade. Fifty percent of that total went to fees, 30% went to Steve Cohen and employees of the firm, and 20% went to the investors. So SAC Capital made $221 million and now they have to pay back $552 million (on their own, with no help from the investors).

The SEC has initially charged a subsidiary of SAC Capital and its former manager, Mathew Martoma, of an insider trading scheme involving an Alzheimer's medicine being jointly developed by two different pharmaceutical companies. According to the SEC, Martoma illegally obtained confidential details about the clinical trial surrounding the drug. Martoma discovered that the clinical trial results turned up negative through Dr. Sidney Gilman, the chairman of the safety monitoring committee overseeing the clinical trial. Gilman has already agreed to pay over $234,000 in disgorgement and pre-judgment interest.

Despite the evidence piling up against him, Martoma still claims to have done nothing wrong. Martoma's lawyer, Charles Stillman, claims, "SAC's business decision to settle with the SEC in no way changes the fact that Mathew Martoma is an innocent man. We will never give up our fight for his vindication."

Since investigating the firm, the government has found at least eight current or former SAC employees linked to allegations of insider trading while working for the hedge fund.

These record-breaking monetary sanctions against SAC Capital and CR Intrinsic serve as a very serious warning that the SEC won't just punish the individual guilty of illegal insider trading, but also the entire hedge fund advisory firm and their funds accountable when their employees break the law.

To watch a video explaining Martoma's insider trading case, click here.

For more information on guru Steven Cohen and his portfolio look at Steven Cohen's latest trades .About GuruFocus: tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing
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